Trade Sanctions vs. Contract Sanctity

With Scot Marciel. Originally published in The New York Times, April 7, 1984. Used with permission of Michael R. Czinkota and The New York Times.

In “Abrogating Trade Contracts” (Op-Ed March 27), Representative Howard Berman argued against the contract sanctity amendment in the Senate version of the Export Administration Act, claiming that it would “deprive the Government of the valuable tool of trade sanctions.”

The fact is, however, that trade sanctions rarely have proved to be effective tools of U.S. policy. They have been imposed to register opposition to foreign government policies or actions to which a diplomatic response seemed inadequate and a military response too dangerous. Unfortunately, they have served more as symbols of U.S. discontent than as coercive or persuasive foreign policy instruments.

Perhaps trade sanctions are useful purely as symbols, but the benefits of symbolic protests need to be weighed carefully against their economic costs. Mr. Berman should realize that there is more at stake here than the “fulfillment of a particular company’s export contract.” Controls that force individual companies to break contracts also have damaging effects on overall export performance. With the U.S. facing a huge and growing trade deficit, this is no small matter.

The sanctions imposed by President Reagan against companies involved in the construction of the Soviet natural gas pipeline to Europe reflect the problems inherent in the use of foreign policy trade controls.

These sanctions surely symbolized U.S. opposition to the project, but they did not prevent its continuation. Meanwhile, they caused a great deal of harm to a number of U.S. and European companies. More important, they severely damaged the reputation of U.S. business in general.

Discussions with several foreign business executives and government officials following the U.S. embargo indicated that in the future they would think twice before entering into contracts with U.S. firms. One Latin American official asked: “Who knows who will be next on the U.S. hit list?”

If U.S. firms are to compete internationally, they must be guaranteed contract sanctity. The contract sanctity provision in the Senate bill will enhance the reputation of U.S. firms as reliable suppliers without diminishing the usefulness of foreign policy trade sanctions as symbolic protests. In fact, the provision may improve the effectiveness of sanctions because it will enable the U.S. Government to impose sanctions more easily and to maintain economic pressure for a longer period of time.